Beaumont took another key step in rehabilitating its finances Wednesday, resolving a dispute with a key federal agency over its bond financing.

The Beaumont Financing Authority and its former executive director settled with the Securities and Exchange Commission over accusations of false statements in connection with five bond offerings. In addition, the underwriting firm behind those offerings and its co-founder settled claims they failed to conduct reasonable due diligence.

“The BFA is pleased to resolve this investigation without any financial penalties that would further hinder the city’s financial recovery,” Beaumont Mayor Lloyd White said in a release.

Former Beaumont City Manager Alan Kapanicas, who also served as the financing authority’s executive director, will pay a $37,500 penalty and is barred from participating in any future municipal bond offerings. He was alleged to have approved and signed misleading offering documents, according to a Beaumont city release.

O’Connor & Company Securities Inc., the underwriter, will pay a $150,000 penalty and retain an independent compliance consultant to review its policies and procedures. Its co-founder and former primary investment banker Anthony Wetherbee will pay a $15,000 penalty and serve a six-month suspension from the securities industry, according to the SEC.

“Investors in municipal bonds depend on timely and complete continuing disclosure from municipal issuers,” said LeeAnn Ghazil Gaunt, Chief of the SEC Enforcement Division’s Public Finance Abuse Unit, in a statement. “Issuers and underwriters will continue to be held accountable when they fail to provide investors with an accurate picture of past compliance with continuing disclosure obligations.”

Financing authorities are established by local governments to aid with the issuance of bonds. Beaumont’s had issued approximately $260 million in municipal bonds in 24 separate offerings from 2003 to 2013, according to the SEC. For each of those offerings, a community facilities district established by Beaumont agreed to provide investors with annual continuing disclosures, including financial information and operating data.

From at least 2004 to April 2013, the district failed to provide investors with the promised information, according to the commission. The authority failed to disclose its compliance record when it conducted the 2012 and 2013 offerings totaling more than $32 million, the commission said. As a result, “the bonds appeared more attractive and investors were misled about the likelihood that the district would comply with its continuing disclosure obligations in the future,” according to the SEC.

Under the settlement, the BFA has agreed to retain an independent consultant, who will generate recommendations for the authority to adopt.

“We look forward to working with an independent consultant to help the BFA further establish strong policies in all aspects of our municipal disclosures, the accounting for bond proceeds and record keeping,” said White, noting the city has never defaulted on debt service payments for its bonds.

The settlement is another step in Beaumont’s quest to pull itself out of a financial quagmire.

In April, the city reached a deal with the Riverside County Transporation Commission concerning a lawsuit over Transportation Uniform Mitigation Fees. Beaumont, which found itself facing a $67-million hole and possible bankruptcy, will now pay back about $30 million. But some of that is credit for transportation projects and includes structured payments over more than 20 years.

Join the Conversation

We invite you to use our commenting platform to engage in insightful conversations about issues in our community. Although we do not pre-screen comments, we reserve the right at all times to remove any information or materials that are unlawful, threatening, abusive, libelous, defamatory, obscene, vulgar, pornographic, profane, indecent or otherwise objectionable to us, and to disclose any information necessary to satisfy the law, regulation, or government request. We might permanently block any user who abuses these conditions.

If you see comments that you find offensive, please use the “Flag as Inappropriate” feature by hovering over the right side of the post, and pulling down on the arrow that appears. Or, contact our editors by emailing moderator@scng.com.